Salesforce.com, Inc. (CRM), ExactTarget Inc (ET) & Oracle Corporation (ORCL): Are There No Profits in the Cloud?

Salesforce is growing largely through acquisitions, but they seem to overpay for unprofitable companies. From 2010 to 2012, the company paid $1.4 billion for acquisitions, and the most recent purchase brings that total up to $3.9 billion. This is about the same as the expected revenue this year.

This can’t continue unless the company takes on more debt. And although borrowing costs are likely still low, salesforce.com, inc. (NYSE:CRM) is using that money to add-on companies which are unprofitable. It’s not exactly rocket science to figure out that this can’t continue forever.

The big boys are getting real

Oracle Corporation (NASDAQ:ORCL) isn’t going to take Salesforce stealing its customers lying down. Oracle has been making acquisitions of late in an attempt to compete with Salesforce, and the $810 million purchase of Eloqua last year is a big one. Eloqua is similar to ExactTarget Inc (NYSE:ET), offering many of the same types of services.

The question is: what is salesforce.com, inc. (NYSE:CRM) doing that Oracle Corporation (NASDAQ:ORCL) can’t do? Sure, it’s ahead of the cloud game a bit, but Oracle has vast resources to work with (since Oracle Corporation (NASDAQ:ORCL) actually turns a profit). Is there any reason to believe that 10 years from now Salesforce will be a powerhouse in the industry? If Salesforce can’t turn a profit now, when it has a lead, what hope is there that the company can turn a profit later when competition is more fierce?

The bottom line

salesforce.com, inc. (NYSE:CRM) needs to prove that it can actually be profitable, including the effects of executive stock options. The stock trades at around 100 times adjusted earnings, which doesn’t even include this cost. The valuation is insane, plain and simple.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Salesforce.com. The Motley Fool owns shares of Oracle Corporation (NASDAQ:ORCL).

The article Are There No Profits in the Cloud? originally appeared on Fool.com.

Timothy is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.